DBRS Publishes Methodology on Rating Global High-Yield CLOs

DBRS has today published its methodology for rating collateralized loan obligations (CLOs), “Rating Global High-Yield Loan Securitizations, Structured Loans and Tranched Credit Derivatives.” While the primary scope of the methodology refers to CLOs, it is applicable to all structured credit transactions backed by high-yield corporate debt.

“Our goal for this piece was to put forth an approach that clearly articulates DBRS credit views in key areas of the sector, as well as to describe how we approach rating these types of transactions in a broad sense,” says Managing Director of U.S. Structured Credit, Darren Davies. “We believe that DBRS has assembled a senior team in U.S. structured credit that is well suited to provide a consistent ratings approach, as well as address the merits of individual transactions. We expect to be releasing additional methodologies in the near term that further underscore this approach.”

The role of DBRS as a credit rating agency in the CLO market is to provide a third-party opinion as to the likelihood of the repayment of principal and interest to the tranches being rated (equity tranches are typically unrated). Although the current state of the entire securitization market is in flux, this methodology aims to provide appropriate levels of flexibility, while providing a rigorous qualitative and quantitative framework that is both consistent and transparent.

The methodology providing DBRS’s processes and criteria is available by contacting us at info@dbrs.com.